I posted earlier on the hike in home loan rates from Westpac
There has been some confusion in the comments about why a rate hike from a commercial bank has led to an increase in the possibility of a rate cut from the Reserve Bank of Australia
I have tried to explain it thus:
If other banks follow suit then the cost of mortgage payments go up
This will see, at the margin (I am using this term in an economics context, not in a margin of profit sense), a cut in household expenditure on other goods and services
The RBA have been warning about this for a long time now
Hence it is of concern to the RBA and, at the margin (again, using it in the context of understanding economics, not business profit margin) , increases the potential for a rate cut.
As i said, IMO it won't be in November, and it may be never happen
But it does increase the probability of a cut, and indeed, thats why market pricing for a potential cut has increased this morning already and the AUD has extended its fall
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Its not just Oliver
RBC have sent a client note along the same lines, as have other analysts.
I posted this initially as the response from Shane Oliver of AMP, link here
Since Oliver's response I've seen RBC post similar
Now Macquarie are out with the same reasoning.
- RBA faces an explicit choice as to whether they wish to see an increase in rates to end borrowers
- WPAC's hike "all but seals the deal for a November rate cut from the RBA"
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Hope this helps
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ps. headline should read Macquarie on Westpac rate hike today, Nov. RBA rate cut all but sealed